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By Nicholas
Jasinski | Tuesday, July 12 Inflation
Angst. A late-day
selloff today left nowhere to hide in U.S. stocks. All 11 sectors of the S&P
500 fell, as growth companies, cyclicals, and defensives all
lost ground. The index as a whole slid 0.9%. The Nasdaq Composite
lost 1% and the Dow Jones Industrial Average
fell 0.6%. Energy stocks led the market lower, as the
price of oil dropped again today (more on that below). The S&P 500 sector
dropped 2%. Technology stocks fell 1.4%, as Microsoft
tumbled 4.1% on a bad day for software stocks. And health care lost 1.3% as
skittish investors fled even safer groups. Cold, hard cash was the only winner: the U.S.
Dollar Index (DXY), which compares the greenback to a basket
of other currencies, rose 0.1% today, to a multidecade high. The
so-called "Dixie" has gained some 17% over the past year, a massive
move in currency markets. The Federal Reserve
is ahead of most other developed country central banks in raising interest
rates, and the higher yields available in the U.S. have contributed
significantly to the stronger dollar. A flight to safety among global
investors of late has also helped boost the currency. That's despite no shortage of inflation in
the U.S., which makes each dollar worth less. Investors and economists will
get the latest data on price increases in the U.S. economy tomorrow morning,
when the Bureau of Labor Statistics
releases the consumer price index for June. The consensus forecast is for an
8.8% year-over-year increase, up from 8.6% in May—which was already a
40-year high. Core CPI, which excludes food and energy prices, is
expected to have increased 5.7%, down from 6.0% in May. That narrower measure
of inflation peaked at 6.5% in March. A result along those lines wouldn't be an
all-clear signal on inflation by any means—not even close. But it's likely to
be a result the Fed can live with. Energy and commodity price increases this
year have been driven by supply disruptions, which are out of the central
bank's control. Other components of the CPI basket are more sensitive to consumers'
spending appetite and inflation expectations. If the core CPI inflation rate
continued to slow in June, that's at least some progress in the fight against
inflation. After a few months of faster-than-forecast
inflation readings, an as-expected result could be enough to prompt a relief
rally tomorrow, according to Wells Fargo equity
strategist Chris Harvey. "We think Wednesday's June CPI report
likely will cause a near-term bounce in risk assets," Harey wrote to
clients today. "We expect equities to have another near-term pop
(risk-on rally) if headline CPI is in-line with, slightly above, or well
below the consensus...In our view, only a well-above-consensus CPI print
sinks the market and spurs more hawkish Fed perceptions." |
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DJIA: -0.62% to 30,981.33 The Hot Stock: American
Airlines Group +10% Best Sector: Communication
Services -0.1% |
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